Trends in current account, Macroeconomics

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Trends in current account:

A  glance at  the net invisible  account suggests that its  ever-  rising  trend  from 2000-01 did not  only support  the  massive trade deficit but  also  could reduce the current account deficit in  1999-00 and 2000-01. Surprisingly, the continued  rise  in  invisibles  led current account to register surplus  during  2001- 0212003-04. Deterioration  in current account deficit has started  from 2004-05 onwards largely on account of burgeoning trade deficit. Although somewhat erratic trend was witnessed  in  capital account balance  during 1990'it maintained upward movement  in the new millennium leading to overall balance surplus and voluminous foreign exchange  reserves. 

In relative terms, merchandise-trade GDP ratio has nearly doubled i.e.,  from 14.6 peicent  in  1990-91 to 28.9  percent  in 2004-05.  India's  share in world exports also spurted to  0.84  percent  in  2004  from  0.52  percent in 1990. Invisible  receipts1GDP  ratio from a low of 2.4 percent in 1990-91 reached 7.7 percent  in 2001-02  and  further rose  to  11.2 percent  in  2004-05. Another indicator  current receipts as a proportion  of  current payments rose from 71.5 percent  in 1990-91 to 96.4 percent  in  2000-01; exceeded  100 percent in 2001-0212003-04 but fell  to  95.7 percent  in  2004-05.The'most  worrisome current account deficit/ GDP ratio which had worsened to  3.1  percent  in 1990-91 improved considerably during 1990s and was hardly 0.6 percent in 2000-01. Subsequently, a sustained  rise  in net  invisible surplus turned  the current account  into surplus rising  from 0.7 percent of GDP in 2001-02  to 1.2 percent  in  2002-03 percent  and  1.7 percent in 2003-04.

However  in 2004-05, current account deficit as a proportion of GDP reached 0.9 percent and is likely to maintain the same  trend in 2005-06, particularly on account of massive trade deficit. There has been considerable improvement in debt and debt service ratios over the 1990s  and India has gained a high degree of  credit- worthiness in the world economy. Table 18.2 exhibits  invisible  items by category of transactions during 2001-21 2004-05. While non-factor  services have  shown some erratic  trend,  these nevertheless  registered a massive surplus in 2004-05. Exports of software  and related services doubled from 2000-01 level to reach $12.8 billion in 2003-04 and a massive $1  7.2 billion in 2004-05. Liberalisation  oftravel abroad has put the net  receipts from travel  in  the red  in 2004-05. The deficit in investment income is on account of repayments of debt and profits &  dividend payments. Not surprisingly, private transfers  (NRIs  remittances)  net balance showing a larger chunk of the net  invisibles during all these years.  In  2005-06, an estimated $25 billion is expected on this account.  

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